The Fall of Online P2P Lending in China: A Critique of the Central-Local Co-regulatory Regime
Banking and Finance Law Review, Forthcoming
35 Pages Posted: 23 Jun 2021
Date Written: January 18, 2021
Online Peer-to-Peer lending (P2P lending or online lending), as an important component of financial technologies (fintechFinTech), was once very popular in China, but by the end of 2020, it had been completely wiped out from the Chinese financial landscape. This is not really due to business failure, but is essentially a product of regulatory dysfunction. Since 2015, China has tried to regulate the P2P lending market by establishing an innovative central-local co-regulatory regime under which local regulators are incentivized to contribute to the regulation of P2P lending in cooperation with the central government. Nevertheless, it seems that the central-local cooperative regulation has failed to achieve its purpose considering the dramatic fall of the P2P lending market in practice. There are serious regulatory issues at both the central and local levels. The central government fails to make proactive regulatory responses to the rise of P2P lending, yet takes heavy-handed measures to control risks after the outbreak of a market crisis. Local regulators, on the other hand, fail to strike a balance between promoting economic growth and protecting investors. The incomplete devolution of regulatory power to local governments also leads to difficulties assigning responsibility between regulators at different levels. There are implications for the central-local co-regulation in China, including the clear allocation of the central and local regulatory power, the enhancement of the local regulator’s independence and the establishment of central-local coordination mechanisms.
Keywords: online P2P lending; fintech; central-local co-regulation; China; financial regulation
JEL Classification: G23; G32; K22
Suggested Citation: Suggested Citation